"It is so quiet, ha? We call this the place where only ghosts live," said Yu Zhengying, who runs a restaurant outside the industrial park. Sitting in her empty hall during lunchtime, Yu said she used to greet many workers over the past three years, but now only a few come.

"Factories here have not been in good business since the second half of last year," Yu explained. "Most of them have shut their doors."

Much the same thing is happening across China. While Beijing continues aiming for leadership in the global clean tech sector, one of its landmark green industries is stumbling. Overcapacity and trade disputes have been driving the Chinese solar industry to a breaking point, and the government is mounting efforts to save it.

This Kaihua Industrial Park factory is one of dozens in the area that no longer produce solar products due to the sour fiscal climate in China. Photo by Coco Liu.

If the efforts fail, it would cause a financial disaster -- not only for the solar manufacturing sector with an annual output worth nearly $157 billion, but also for state-owned banks that lent billions of dollars in loans to the Chinese solar industry.

Social stability is at risk, too. The Chinese solar industry provides 1 million jobs, and its collapse would cause a large number of layoffs. Already, a temporary closure of a solar factory in eastern China last year led to worker protests.

"China's solar industry now plays a significant role on the global stage, it would be a pity if we lose it," said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University. "The development of renewable energy is a certain trend. If we lose our leadership in solar this time, we may not be able to get it back in the future."

A glut of solar panels

Lured by business potential and backed by local bankers who would green-light anything associated with green investments, China's solar industry in recent years has been headed toward a reckless expansion. In 2011, it had the ability to produce more than 30 gigawatts of solar panels while the total global demand wasn't anywhere near that, according to the Photovoltaic Committee of the Chinese Renewable Energy Society, a leading industry organization based in Beijing.

The glut then got worse amid trade disputes. The United States and the European Union, two key solar markets, launched investigations against Chinese imports for what they said was the selling of solar products below production cost and unfair subsidies. The U.S. investigations recently ended with punitive tariffs on Chinese solar cell imports.

Although the exact amount of sales decline caused by the punitive tariffs is hard to know, as many Chinese companies have managed to dodge the tariffs by exporting some of their solar parts to another country and completing the production there before exporting them, analysts say there is no doubt that the trade restriction has caused a headache.

If the European Union follows suit and imposes punitive tariffs, which many believe will be the case, Chinese solar companies may not only feel a headache but a killing blow. That is because 20 percent of Chinese solar exports land in the United States, while the export figure rises to more than 60 percent to the European market. It is also because the E.U. investigations target all made-in-China solar goods, leaving little room to maneuver.

Idled factories, declining profits

The current problems and foreseeable troubles have resulted in a ferocious price war. With prices for solar panels barely covering the cost to make them, "China's whole solar industry is now in a big trouble," said Wu Dacheng, vice chairman at the Photovoltaic Committee. "Some small factories have already shut down because the more panels they produce the more money they lose."

Even for those that built an integrated production chain and have an advantage in cost control, the price slump is still painful. Earlier last month, Chinese solar giant LDK Solar disclosed profit losses for the third straight quarter amounting to millions of dollars. Its peers such as JA Solar Holdings and Yingli Green Energy Holdings are also starting to see their balance sheets go negative.

What has also tumbled is the stock value of U.S.-listed Chinese solar companies with shrinkage of more than 85 percent since early 2011. Suntech Power Holdings, the industry leader, in 2012 received a warning of being delisted from the New York Stock Exchange as its share price stayed below $1 for a month. By contrast, that figure was nearly $90 in 2008.

Some financial analysts who used to follow Chinese solar companies have shifted their focus to other environmental sectors like waste management. As one of them explained, "The solar industry is now on the edge of collapse. Why is it worth attention?"

China is scrambling for ways to save its solar industry. It has tried to end the trade disputes by launching trade investigations against imported polysilicon, a key raw material used in solar panel production imported from the United States and the European Union. Experts worry that if Beijing adopts punitive tariffs on imported polysilicon, solar panel makers here will face a higher production cost and a still lower possibility to make ends meet.

Can emerging markets save Chinese solar giants?

So, instead of retaliation, China's solar industry is calling to keep factories busy by feeding them with domestic orders. In response, the Chinese government recently raised the nation's solar energy installation target to be 21 gigawatts by 2015, a 40 percent increase from the goal announced in 2012.

Policymakers here are designing a pricing mechanism that some power-hungry factories can use to lower their utility bills by using electricity generated from solar panels installed on their roofs. Meanwhile, State Grid Corp., which is responsible for more than 90 percent of China's electricity distribution, promised to remove constraints on connecting those solar projects and to purchase electricity the project owners don't need.

The supportive policies will turn China into one of the globe's fastest-expanding solar markets. And "the expansion of Chinese solar market will be very helpful for domestic solar companies," said Steven Han, analyst at U.S.-based consulting firm Solarbuzz.

Solarbuzz estimates that the demand in the Chinese solar market will triple in 2013 to be 7 gigawatts. This, combined with overseas demand, is expected to bring sufficient business to 10 solar giants like Yingli Green Energy -- the sort of solar companies that Chinese policymakers hope to keep alive, Han said.

And for smaller players, this might be the time to leave. The State Council, China's Cabinet, said in a December statement that it would encourage mergers in the domestic solar industry, although no details were given on how to do so. The Cabinet also plans to slow down production capacity expansion by controlling new facility buildup.

Analysts say these measures would narrow the gap between demand and supply, but not close it. They also point out that exploring new markets requires massive investment. That means many Chinese solar companies may continue to see several quarters of red ink despite forecasts of rising sales.

In the industrial park of Kaihua County, the struggle of solar factories has already led to cutting half the revenue of Yu's restaurant. But she still doesn't plan to move. With government support, Yu said, factories here will survive, as reflected on a nearby roadside propaganda slogan: "Catching new opportunities and overcoming new challenges."